July | August 2017


 

 

 

 

 

 

Americans Expected to Save, Not Spend, Tax Refunds

By Shawntaye Hopkins, CSG communications associate
Although not set on the usual April 15 date this year, the deadline to file federal tax returns is quickly approaching. Millions of people across the country will receive tax refunds and face decisions about how to spend the money.
U.S. citizens have a few more days to file 2015 income tax returns because of Emancipation Day, a holiday in Washington, D.C., that commemorates the end of slavery in the nation’s capital. Slavery was abolished in D.C. on April 16, 1862. The District’s holiday is usually recognized on April 16, but that date falls on a Saturday this year, meaning the holiday will be observed on Friday, April 15.
Therefore, tax returns are due Monday, April 18, for most U.S. citizens. Residents of Maine and Massachusetts, where Patriots’ Day is observed on the third Monday of April, have until April 19 to file.
In most states, the deadline to file state income tax returns coincides with the April 18 federal deadline.
However, it is the extra money—not the extra filing days—that appeals more to most taxpayers. In January, the Internal Revenue Service expected more than 70 percent of taxpayers to receive federal refunds this year, according to a news release.
The average individual income tax refund for fiscal year 2015 was just over $2,700, the IRS reported.
“You might see a slight boost in sales taxes after people get their tax refunds,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “Obviously, a lot of people use tax returns to do things like pay off credit cards or put it into savings.”
The National Retail Federation, or NRF, a trade association that represents retailers from the U.S. and more than 45 countries, conducted a survey to gauge consumer behavior and shopping trends related to tax returns.
According to the annual Tax Returns Survey released in February, 49.2 percent of those expecting a refund planned to save the money rather than spend it immediately, the highest percentage in the survey’s history.
“Consumers are boosting their confidence and building their spending power as they set aside their checks from Uncle Sam,” NRF President and CEO Matthew Shay said in a news release. “Americans this year see refund season as a time to improve their financial health by using their refunds to get ahead on savings goals, pay down debt and plan for purchases in the future. Money saved is spending power down the road.”
According to the survey, 34.9 percent planned to pay down debt and 22.4 percent planned to use refunds for everyday expenses. In addition, 9.2 percent said they planned to spend money on big-ticket items like TVs and cars. The survey polled 7,108 consumers on Feb. 2-9.
Although an increase in sales tax collection from people spending their refunds is possible, collections on personal and corporate income tax will have a bigger impact on states, according to Sigritz. 
“States are really reliant on the April returns to see what their tax collections are going to be for the year,” he said.
Soon states will begin to look for April surprises, he said.
“April goes a long way for states in determining if revenues are going to end the year on target, above or below projections,” Sigritz said.
He said most states had positive April surprises last year “largely due to the stock market performing well in calendar year 2014, which led to larger capital gains and other kinds of income.”

 

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